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Royal Dutch Shell's Kulluk drillship in the Beaufort Sea in fall 2012.
Royal Dutch Shell photo

As Arctic and Southwest Alaska communities contemplate the resources needed to create a safe and efficient network to accommodate increased shipping traffic and offshore oil and gas development in northern waters, work is underway to provide some funding for that effort. But the effort isn’t supported, at this point, by the federal administration.

Since offshore development of resources in Alaska occurs in federal waters, local and state governments do not receive any direct revenue from the leases. A bill addressing that inequity has been brought forward by Sens. Lisa Murkowski and Mary Landrieu, D-Louisiana. The bill, dubbed the Fixing America’s Inequities with Revenue (FAIR) Act, would move toward a solution to that problem, sponsors say.

“Revenue sharing is important for the coastal communities that will have increased demands on their infrastructure and public services from offshore development,” Murkowski said in a statement. “In Alaska, the federal government has not invested in the infrastructure necessary to support offshore development. The only pot of money available to pay for the roads, docks and other infrastructure that are needed is through expansion of the revenue sharing program.”

Infrastructure needs dire

North Slope Borough Mayor Charlotte Brower testified before the committee, saying the legislation was essential to ensuring that state and local governments have the resources they need to keep up with infrastructure requirements, deal with the expanded need for emergency response, search and rescue capabilities and oil spill preparedness.

“We live in the most undeveloped region in our nation,” Brower testified. “Investments must be made in the infrastructure necessary to ensure that OCS (outer continental shelf) development can be conducted safely and responsibly, and the burden of providing such infrastructure should not fall solely on the people that have the most to lose in the event of an oil spill.”

Brower noted that other nations are approaching her shoreline asking for services that do not exist.

“I’m already being asked by the Korean government to come off my port,” Brower said. “What port? I don’t have a port in the North Slope, in Barrow, Alaska. So they want to put out over 1,000 Koreans off my shores. I’m sorry. I don’t have no place for you.”

Brower testified that one of the biggest strains from offshore development on the community of Barrow was housing. When Shell oil began its efforts to drill in the Chukchi and Beaufort seas, the North Slope Borough was optimistic some relief would come to the housing shortage in the area. But that did not happen.

“We were hoping that with new operations with Shell Oil would bring in more revenue and we could be able to help our housing needs,” she said.

Brower also testified that last fall’s flood missed the community by only four feet.

“The next flood, I expect my whole town in Barrow to be wiped out just by infrastructure lost and that is a concern,” she said.

Brower said that the community of Barrow was elated when the United States Coast Guard chose to put more resources in Barrow. But now, they have moved their office down to Kotzebue, she said.

“We were going to spend money so we can keep them, but they go to the next community so that they can pay a lower rent,” she said.

Brower said the people of the North Slope Borough want to believe the federal government’s pledge to help with issues created by expansion of offshore development.

“We always believe what the United States says to us, but they turn around and say another thing,” she said. “When we heard about revenue sharing, we were happy, we were able to bring at least some coffers into our government so that we can provide services. The federal government has since left us.”

Administration says it can’t support bill

The proposed bill, which was recently brought before the U.S. Senate Energy and Natural Resources Committee for a hearing, proposes that states receive up to 37.5 percent of revenue for energy production off their coastlines, regardless of the type of energy produced. For states that produce renewable energy on federal lands within their borders, a 50 percent cut is suggested.

But Pamela Haze, deputy secretary for budget, finance, performance and acquisition for the U.S. Department of the Interior, said the cost to the federal government from the bill is too high. In addition to revenue sharing, the FAIR act would eliminate the current $500 million cap on amounts distributed to Gulf Coast states. The cap would increase by $100 million per year until 2025, at which point the cap would be removed entirely.

“We note that the cost to the Treasury of eliminating the cap would be significant, and based on current revenue projections and trends, would eventually be in the billions of dollars annually,” she said in a statement before the committee. “According to the Department’s preliminary calculations made since S. 1273’s introduction a week ago, the bill would likely result in a reduction of more than $5 billion in deposits to the Treasury through 2022, and the rate of reduction in deposits would dramatically increase thereafter. This loss of revenue to the Treasury is a major concern for the Administration as agencies are already forced to do more with less under sequestration.”

Haze said the revenue sharing provisions would ultimately reduce the net return to taxpayers in every state from the development of offshore energy resources owned by all Americans, and would have significant impacts to the Federal Treasury, not to mention increase the federal deficit.

“In addition, the bill does not appear to be targeted to achieve clear conservation or energy policy outcomes,” she said. “For these reasons, the Administration cannot support the bill.”

Sen. Murkowski’s office said the Office of Management and Budget estimates the cost of the bill to the federal treasury over a 10-year period to be $6 billion, the majority of which is related to the accelerated revenue sharing to Gulf Coast states. The Alaska portion adds little to the cost of the bill, the office said. In addition, Murkowski and Landrieu are committed to finding offsets for the cost of the bill to the federal treasury before moving it out of committee, they said.

“There has been a lot of discussion about the benefits that flow to coastal states and communities from offshore energy development, but not much about the impacts to these areas that results from development,” Murkowski said. “Revenue sharing is absolutely critical to fund the infrastructure needed to support offshore energy activity, emergency and oil spill preparedness and response capabilities, mitigation and restoration projects, and to meet increased demands on public services.”

Carey Restino is editor of The Arctic Sounder and the Bristol Bay Times-Dutch Harbor Fisherman, where this report first appeared. Contact her at crestino(at)reportalaska.com.